Mellody Hobson explains the debt ceiling in today’s “Money Mondays” segment.
Let’s start at the beginning. A common misperception is that the debt ceiling is the amount of money the government owes, and that raising the ceiling means increasing the federal debt. The federal debt is what it is…$16.76 trillion as of September 30th, according to the Treasury department. By contrast, the debt ceiling is the amount of money the government can borrow in order to pay that debt. That limit is currently $16.7 trillion, although technically the government already exceeded it in May. So the debt and the debt ceiling are different, but raising the amount the government is allowed to borrow will of course end up allowing the country to go deeper into debt, at least temporarily.
How is that money “borrowed” by the government and from whom are they borrowing?
You and me! And other people and countries all over the globe. Plus, in recent years, the Federal Reserve has emerged as a major buyer. The U.S. government borrows money by selling Treasury Bonds…and it uses the money it makes from selling those bonds to pay off existing debt and borrow additional money.
Should the government just cut federal spending?
That’s logical but could be disastrous right now because the economy is still recovering. According to the Congressional Research Service, cutting federal expenditures would mean discretionary spending would be drastically reduced—that includes defense, education and housing. Social Security would be threatened, taxes would need to rise and the economy would likely go into recession as a result. So a meaningful cut in spending is not a good option at this time.
What’s so important about October 17th?
That’s the day officials say the U.S. will run out of money. Defaulting on our debt would mean the government’s credit rating could be downgraded again and cause a default on U.S. Treasury bonds, which many Americans have as part of their retirement or investment portfolios. The dollar could crash. Not to mention, the low interest rates we’ve enjoyed for home-buying, credit cards or business loans would also rise very quickly. This debt issue has the potential to set our economy back into a tailspin. And not just us…Treasury bonds and the dollar are cornerstones of the global financial system, so it could affect the whole world if we don’t address it. It’s basically a financial doomsday scenario.
What do you think is going to happen?
I guess we’ll find out in a few days! But the debt ceiling is changed by Congress. They can either pass a standalone bill or include it in another piece of legislation as an amendment. Congress originally created the debt ceiling in 1917 during World War I in an effort to limit federal borrowing. Since 1960, the debt ceiling has been raised 78 times. It’s a simple matter of amending the law, but that means coming to a compromise in Congress.
And this is where the government shutdown comes in.
Exactly. There’s a standoff in Washington as Republicans and Democrats argue about the federal budget. Hopefully, they’ll at least come to a temporary agreement before Thursday.
Mellody Hobson is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.
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This Week’s Celebrity Instagrams (11/26-12/2)
30 photos Launch gallery
1. Little Legend and Puddy 😍😍😍😍
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2. "You on point Phife?" "all the time,Tip". 💥 #bannedfromnormal
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3. Vegan! The Impossible burger at Crossroads
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4. Lawrence #BeforeandAfterEpisodes 1-4: 184lbs 13% body fatEpisode 8: 196lbs 8% body fat S/O @coachdaveboxing with the works outs and @kildareriordan with the nutrition
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5. Jus haaaanngin out
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6. Meanwhile back at home in Atlanta GA someone mad they not on the 🛳. 😳
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7. No limits... Photo cred: Chris Bridges @ludacris
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8. new new
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9. Apparently my 260lbs is too much for the actual vines in the Hawaiian jungles to hold me without breaking and me falling hundreds of feet. So for safety purposes, I'm forced to swing thru #Jumanjj on wires strong enough to hold 12 adult buffaloes and 1 adult Rock. #OnSet #Jumanji #IronicallyIEatBuffaloDailyForLunch #MoreManThanNatureKnowsWhatToDoWith
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10. hey ma! 🎎#wcw 💙
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11. Surprise visit to our factories!!! #GoodAmerican #USA
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13. Peachy Keen 🔥✨⚡️
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14. If this don't look thankful I don't know what does. Happy Thanksgiving to you and yours. #UltraBlessed #24kMagic #SweetPotatoFly
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15. Late nights @nbcmarlon with the writers... we in here!!!
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16. There goes my baaaaaaaaabbbbyyyyy #QueenKingMagic!!! We're up to something! Ira BIG!!! Stay out our buisness -
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17. You want to win every game you play but when you come home to these faces... who cares. #ILoveYouGirls best part of my day, everyday!
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18. Steady,steady..... full size jenga.. "I got this one "???? Or do I ?
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19. Cornrows kind of day 😉@dontaysavoy2 you convinced me and I love. ❤️️
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20. #BrotherlyLove #tbt
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22. #basel #TeamLOVE @kingcombs
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23. Just introduced a special screening of @directher 's groundbreaking (must see) documentary @13thfilm with my brother @themichaelealy | @unitedblackout #blackoutblackfriday
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24. Me & Vanessa Williams giving #DuckLips #Pose on the set of #DaytimeDivas @vh1 - Coming Soon to a tv near you. Lol. - My make up done by @makeupsurgeon
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25. This picture just makes me wanna praise the Lord, you hear me!!!!!! Yes Lord brotha #TEDDYCAMPBELL What a #man !!! You are everything right on this picture husband ......... #gorgeous #stylish #classy #strong #masculine #king #sexy #debonair #gentlemenstyle And that #bible in your hand just seals the deal for me (probably cause i know that, that is what helped you become just as amazing as you look😘). While my heart and mind experiences the goodness of God at #church on Sundays, my eyes experiences the goodness of Teddy😍. Amen somebody🙌🏽. "Bless the Lord oh my soul and all that is within me bless his holy name" #myman #myhusband #goodman #blackman #dapperman #godlyman #goodfather #mybestfriend
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26. Yesterday was my mama's 53rd birthday!!!!! Got to celebrate with her all day. If this is what I have to look forward to I can't wait. Looking like a soft bucket a cocoa butter. Yaaaaaaaaaas! 😍😍😍 love you mommy!
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27. "Shout out to @PureAtlanta for getting the family right"....I'm loving this jogger. 😍😍
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28. This pic warms my heart ❤️ #myLogiebeans and aunt aunt umba @itowandabraxton 😘
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29. You will always be my baby😜. #HappyBirthdayReginae #mybaby18
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30. GC "Gods Child" Red on Red SweatSuit available now at www.MonicaApparel.com ... Take Your Crown wherever you go!! I'm pictured in a Medium... Go to the site now for other options ... cc: @trukernell
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